The correct answer is (d). Credit creation is not a function of the Reserve Bank of India.
The Reserve Bank of India (RBI) is the central bank of India. It was established on April 1, 1935, in accordance with the Reserve Bank of India Act, 1934. The RBI is the banker to the government of India and the banker’s bank. It is also the issuer of the Indian rupee.
The RBI has the following functions:
- To regulate the issue of bank notes and to keep the value of the rupee stable.
- To promote the growth of the economy.
- To maintain financial stability.
- To act as the lender of last resort to banks.
- To regulate the financial system.
- To conduct monetary policy.
- To act as the government’s banker.
- To promote the development of the financial sector.
- To provide financial services to the government and to the public.
Credit creation is the process by which banks create money by lending money. Banks create money when they make loans. When a bank makes a loan, it credits the borrower’s account with the amount of the loan. The borrower can then use this money to make purchases or to deposit it in another bank. When the borrower deposits the money in another bank, that bank credits the depositor’s account with the amount of the deposit. The bank can then lend out this money, and so on. In this way, banks can create money by lending money.
The RBI does not have the power to create money. The RBI can only issue currency notes. The RBI can also buy and sell government securities, but this does not create money. When the RBI buys government securities, it pays for them by crediting the seller’s account with the amount of the purchase. The seller can then use this money to make purchases or to deposit it in another bank. When the seller deposits the money in another bank, that bank credits the depositor’s account with the amount of the deposit. The bank can then lend out this money, but this does not create money. The money that the RBI pays for the government securities is simply transferred from one account to another.